2014 (3) TMI 403 - AT - Income Tax

Disallowance of provision for outstanding expenses Held that - The CIT was of the view that the assessee has restricted the disallowance on the ground that the assessee has made payment before finalization of books of account but for the amount of credit note has been issued or actual payment has been made after finalization of books of and the balance amount was written back on 31.3.2011 thus, the total amount liability has not been ascertained and quantified till the finalization of books of account the assessee did not dispute the fact that the above amount which has been disallowed by CIT(A) was ascertained and crystallized after finalization of books of account in the next financial year - thus, there is no reason to interfere in the findings of CIT(A) Decided against Assessee. Proper compliance of provision of section 145A of the Act Method of valuation - Whether the CIT(A) (A) erred in holding that the provisions of section 145A of the IT Act, 1961 have not been adopted by the appellant fully and thereby directing the AO to recompute the profits of the appellant in respect of unutilized modvat Held that - CIT(A) has wrongly/due to typographical mistake has mentioned that as per section 145A, the assessee has followed compulsory exclusive method as against practice of following the same by inclusive method - CIT(A) after considering the submissions of assessee has directed the AO to recompute the profit after making adjustment with reference to the opening stock, closing stock, purchases and sales after considering the Modvat credit available to the assessee which is to be included while valuing the closing stock - The unutilized modvat is not to be included in the closing stock as the assessee has adopted exclusive method in respect of purchases of raw material and accordingly, the closing stock has been valued thus, the addition of unavailed modvat credit set aside Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of provision for outstanding expense
2. Interpretation of section 145A of the IT Act, 1961
3. Determination of brought forward unabsorbed depreciation allowance

Issue 1: Disallowance of provision for outstanding expense
The appellant filed an appeal against the order of the Commissioner of Income Tax(A) for the assessment year 2007-08 regarding the disallowance of a provision for outstanding expenses amounting to Rs.8,67,820. The Assessing Officer disallowed the claim as the liability had not crystallized during the relevant assessment year. The Commissioner restricted the disallowance to Rs.8,67,820, stating that the liability was not ascertained and quantified till the finalization of the books of account. The appellant argued that the disallowed amount was ascertained after the finalization of the books of account in the next financial year. The Tribunal upheld the Commissioner's order, rejecting the appellant's ground of appeal.

Issue 2: Interpretation of section 145A of the IT Act, 1961
The Assessing Officer added unutilized modvat credit of Rs.5,46,729 to the closing stock, stating that the appellant did not fully adopt the provisions of section 145A. The Commissioner directed the AO to recompute the profit by including the modvat credit available to the appellant in valuing the closing stock. The appellant argued that they followed the exclusive method in purchases, excluding taxes, duties, etc., and that including unavailed modvat credit in the closing stock would require adjustments in purchases as well. The Tribunal agreed with the appellant, holding that the unutilized modvat credit should not be included in the closing stock, as the appellant followed the exclusive method for purchases.

Issue 3: Determination of brought forward unabsorbed depreciation allowance
The appellant requested the AO to determine the brought forward unabsorbed depreciation allowance for assessment year 2007-08 based on a previous order under section 264 for the AY 2006-07. However, during the hearing, the appellant did not press this ground, leading to its rejection by the Tribunal.

In conclusion, the Tribunal partially allowed the appeal of the assessee, rejecting some grounds while accepting others based on detailed analysis and interpretation of the provisions of the IT Act, 1961.